Not All Non-Disclosure Agreements (NDAs) Are Created Equal
When it comes to protecting your business's sensitive information, a well-crafted non-disclosure agreement is essential. It's not just about having an NDA in place; it's about ensuring that the agreement is tailored to fit the unique needs of your business and the specific situation at hand.
There are many forms available, ranging from free sources online, commercial form providers, or to AI generated ones. However, not all NDAs are created equal, and a person who uses a form without fully understanding it may be putting their business at risk. Here are a few points that can make a huge difference (for better or worse) in the impact of your confidentiality agreement.
One Way vs Mutual
One very basic issue is who has a duty to protect the confidential information. Some NDAs are one-way so that only one recipient has confidentiality obligations. These are ideal for sharing limited information with vendors, consultants, and similar parties without limiting the disclosing party’s ability to use any information provided in return. Other NDAs are two-way, mutual, or reciprocal, so that both parties have a duty of confidentiality. A mutual NDA is generally more appropriate for open-ended discussions with potential business partners and investors.
Scope of Confidential Information
Some NDAs only apply to information that is marked as “confidential.” Others apply to broad categories of technical and commercial information, whether or not they are marked as “confidential.” The best approach for you depends on your specific circumstances.
Disclosure to Related Parties
There may be good reasons to share confidential information with consultants, investors, subsidiary and affiliated companies, and other related parties. A good NDA will provide for any necessary disclosures while maintaining an appropriate level of protection over the confidential information, and give you a remedy in case one of those related parties reveals your confidential information.
Duration of Protection
NDAs are occasionally “open-ended” so that information remains confidential until it is in the public domain. Usually, it makes more sense to set a hard time limit on the obligation, since almost all confidential information eventually becomes irrelevant. It can also be important to set a time limit on the window during which protected confidential information can be exchanged, so that the agreement does not apply to discussions conducted years in the future.
Other Protective Terms
Consider including other protective terms in your NDA, such as non-solicitation and non-circumvention provisions. A non-solicitation clause will prohibit the other party from recruiting staff they might meet, especially when technical information or trade secrets are involved. Non-solicitation clauses are not present in all NDAs, and they must be carefully tailored. A non-circumvention clause may also be appropriate to prevent the other party from going directly to your suppliers, clients, or others with the intention of bypassing you and pursuing the business opportunity without you.
Avoids of Oral Agreements
An NDA can be used to avoid disputes over business relationships by including a provision stating that any definitive transaction will require a written agreement. This can prevent someone from later claiming that an unwritten agreement (such as a partnership or purchase and sale agreement) existed between the parties.
International Enforcement
If the other party to the NDA is based in a foreign country, it is important to consider whether the NDA can be enforced against them. The governing law and jurisdiction clauses can be of extreme importance in this case, as a judgment from a Washington court under Washington law may be easily enforced in New York or Los Angeles but completely unenforceable in Tokyo.
Technical Safeguards
Confidentiality and nondisclosure language is only one way to protect the confidentiality of information. For the most sensitive types of information, there are technical safeguards available to prevent unwanted disclosure, such as virtual clean rooms accessible only by certain individuals.
Protect Your Information!
Whether it's deciding between a one-way or two-way NDA, defining the scope of confidential information, setting the duration of protection, or including other protective covenants and technical safeguards, each aspect of an NDA requires careful consideration. Remember, the strength of your NDA can have a significant impact on your business's security and future success. So, take the time to understand the terms, seek legal advice if needed, and ensure that your NDA serves as a robust shield for your valuable information.
The good news is that Rational Unicorn offers flat-fee based NDAs. To schedule your free 30 minute consultation, visit our contact page.